Saving money in itself is a huge challenge and to see inflation bite into it can be very frustating. However, a bit of careful planning will give you the peace of mind you need to make sure your savings are safe.
The good folks at Capital Assesment have created a simple infographics with tips to protect your savings against inflation
Tip one: Choose your ISA carefully
● Most cash ISA rates do not keep up with CPI, the index that measures inflation. However, there are a handful that pay more, so be sure to keep an eye on best buy tables.
● If you are nearing retirement, a cash ISA is a good safe haven to consider.
Tip two: Go for gilts
● If you are five to ten years from retirement you could use your full £11,520 stocks and shares allowance to buy inflation-linked gilts.
● These are linked to RPI, which has averaged around 0.7% higher than CPI over the past 20 years.
● Returns on equities can beat inflation when you take into account the value of reinvested dividends.
● Barclays’ 2011 Equity Gilt Study calculated £100 invested in equities at the end of 1899 would be worth just £180 in real terms today without the reinvestment of dividend income; with reinvestment, the same portfolio would have grown to £24,133.
Tip four: Go for gold, copper, silver…
● The rising cost of metals and food has seen the price of commodity-based investments soar.
● Gold is often used to hedge against inflation – you can buy it direct via bullion or coins or through an ETF that tracks the price of gold.
● A collective investment may be a wiser idea – some funds invest in mining companies as well as other firms that stand to benefit from rising gold and commodity prices.
Tip five: Become a bank
● Peer-to-peer websites which unite lenders with borrowers can earn those with money to invest up to 8% in return.
● Of course lending to others does carry a risk. Earn 8.9% with Funding Circle, 6.2% with Ratesetter or 5.4% after a 1% fee withZopa.
● Spread your risk by lending a little with each one.
● As always, it makes sense to speak with a qualified financial planner who can help you build a personalised plan to mitigate the effects of inflation on your investments.
Written by Alan Smith, CEO of Capital Asset Management